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Fair Business Law
Q: I own significant stock in privately held company on Long Island and one of the shareholders has sued the Corporation for dissolution. What happens next?
A: First, take a look at the shareholders agreement, if you have one. If there is an arbitration agreement, the Court will order the parties to arbitrate their dispute, if you timely make a motion to stay the court proceedings. You need to act quickly, however, so that there is no waiver of the right to arbitrate.
Next, make sure that the disgruntled shareholder actually owns the minimum 20% of the voting stock in the corporation.
There are two choices once confronted by a shareholder lawsuit: either to fight over whether there has been oppression (or waste or looting) by the majority, or elect to buy-out the shares owned by the petitioning shareholder(s) for “fair value.”
Once a shareholder brings a section 1104-a dissolution proceeding, the other shareholders and/or Corporation have a 90-day period to elect to purchase the shares owned by the petitioning shareholders.
Often, emotionally, the respondent shareholders are prepared to fight the oppression allegations, rather than buying out the shares. If the 90-day period has passed, however, the statute provides that the corporation or the defending shareholders can ask the court for permission to buy-out the petitioners.
Be careful, though, as the decision to elect to purchase is irrevocable.
Erica B. Garay is the Chair of the Alternative Dispute Resolution practice group and a member of the firm’s Litigation practice. She is also an arbitrator and mediator and serves on the American Arbitration Association roster of neutrals for commercial and complex litigation.
For the past fifty years, the law firm of Meyer, Suozzi, English & Klein, P.C. has created a reputation for integrity, insight and intellect that has helped establish the standard for excellence in the practice of law. With offices in Albany, Garden City, Manhattan and Washington, D.C., the firm provides legal advice in the areas of Alternative Dispute Resolution, Bankruptcy, Corporate Finance, Corporate, Criminal Defense, Disability Insurance Claims, Employee Benefits, Employment Law, Government Relations, Labor Law, Litigation, Real Estate, Tax Certiorari & Condemnation, Trusts, Wills and Estates. “Ask the Lawyer” is provided by Meyer, Suozzi, English & Klein, P.C. to inform on matters of public interest. The information contained herein is not to be construed as legal advice or opinion. We provide such advice or opinion only after being engaged to do so with respect to particular facts and circumstances.
